The Expert Podcast

If you're an insurance company, this is why you don't play games in paying claims. If you have a valid claim against you and you don't pay it properly, it can snowball quickly. Here's a case where there was an insurance claim of five hundred thousand dollars, and actually, you started out at 250. Because the insurance company didn't act properly, they ended up paying millions of dollars to the victim.

How did all this work? Well, this insurance company had a claim against it for two hundred and fifty thousand dollars. After failing for 400 Days, more than a year, to give its policy limit basically, pay the claim, then the insurance company took an eight and a half million dollar hit to its bottom line to settle a lawsuit because they didn't pay the claim initially.

This is an extremely important lesson for insurers: to properly handle the claims process. Most states have in place a very specific set of regulations for how to handle claims in good faith. Certainly, you want to investigate a claim to make sure it's legitimate, to make sure you know all the facts. But if you drag your feet and if you have a claim that is obviously valid on its face and you've done proper due diligence in a reasonable amount of time and you don't pay that claim, it can snowball out of hand very quickly. Paying that 250 up front would eliminate almost 10 million dollars, eight and a half, nine depending on how you count it. Plus there's probably legal fees you have to pay, there's probably penalties you need to pay, and your insurance license might be at stake because now somebody can file a complaint against you for bad faith in claims processing.